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Effects on Investment

In their article, "Investment Effects of Wealth Taxes Under Uncertainty and Irreversibility," Rainer Niemann and Caren Sureth-Sloane found that the effects of wealth taxation on investment mainly depends upon the tax method employed and the broadness of the wealth threshold for taxation. Niemann and Sureth-Sloane found that, “Broadening the wealth tax base tends to accelerate investment during high interest rate periods.” Caren Sureth and Ralf Maiterth concluded that wealth tax revenues from entrepreneurs may decrease in the long term and the revenue from a wealth tax may be negative if the wealth taxation thresholds are too low.

Saez and Zucman are two economist that worked on the "Ultra-Millionaire Tax" proposed by Senator Elizabeth Warren. In their paper, "Progressive Wealth Taxation," they assert that a potential wealth tax in the United States needs necessary parameters to limit detrimental effects on investment. One parameter is a high wealth threshold to limit direct taxation on small business and entrepreneurship. The academic literature on the effects of wealth taxation on investment incentives are inconclusive in the United States; Saez and Zucman assert there are three reasons wealth taxes in European countries are weak comparisons to the United States when analyzing potential effects on investment. First, they claim tax competition between European countries allows for individuals to avoid taxation by allocating assets to a different country. Reallocating assets to avoid taxation is more difficult in the United States because tax filings apply equally to United States citizens no matter the country of current residence. Second, law exemption thresholds caused liquidity problems for some individuals who were on the lower end of wealth taxation thresholds. Third, they contend European wealth taxes need modernization and improved methods for systematic information gathering.

Further proponents for a wealth tax claim it could have positive effects on investment in the United States. Some extremely wealthy people use their assets in unproductive ways. For example, an entrepreneur could generate much higher returns than a wealthy individual with a conservative investment such as United States Treasury Bonds. A wealth tax could lead to negative effects on investment, saving, and economic growth. In the article, "Economic effects of wealth taxation," Kyle Pomerleau states, "A wealth tax, even levied at an apparently low annual rate, places a significant burden on saving." The degree of this impact on savings and investments is reliant on the openness of the United States economy. A wealth tax would shrink national saving and increase foreign ownerhship of assets. The potential decrease in national savings leads to a decrease in capital stock. An estimate from the Penn Wharton Budget Model indicates that if the revenue from the wealth tax proposed by Elizabeth Warren were used to finance non-productive government spending, GDP would decrease by 2.1 percent by 2050, capital stock would decrease by 6.5 percent, and wages would decrease by 2.3 percent. Some opponents also point out that redistribution through a wealth tax is an inherently counterintuitive way to foster economic growth. Richard Epstein, a senior fellow at the Hoover Institution, contents, "The classical liberal approach wants to simplify taxation and reduce regulation to spur growth. Plain old growth is a much better social tonic that the toxic Warren Wealth Tax."



Concentration of Wealth:

Implications of a Wealth Tax

The rise of inequality in the United States over the past few decades has incurred debate over new types of progressive taxation.Wealth taxation is a potential tool to raise revenue and reduce wealth disparities. Candidates in the 2020 primary presidential election have proposed potential wealth taxes such as Elizabeth Warren’s “Ultra-Millionaire-Tax.” Senator Bernie Sanders has also proposed a tax on “extreme wealth”. Warren and Sanders point to wealth inequality for the necessity of a wealth tax. In a paper by Leiserson, McGrew, and Koppgaram (2016) they found that median wealth is $97,000 while the mean household wealth is $690,000. The authors argue the "highly skewed distribution of wealth is one of the primary reasons the burden of net worth tax would be highly progressive."

Gini Coefficient

Main Article:https://en.wikipedia.org/wiki/Gini_coefficient

The Gini coefficient is proportional to a countries tax system and countries with higher Gini coefficients are linked to "poorly designed tax systems, tax evasion and tax avoidance". The Gini coefficient is a relevant statistical tool when analyzing the idea of a wealth tax as a means of redistribution. The Gini_coefficient is a mathematical measure of wealth distribution of a population. . The Gini coefficient ranges from zero to one, zero indicates perfect income equality while one indicates perfect income inequality. The Federal Reserve Bank of Saint Louis compared the Gini Coefficient of various countries and regions. In regards to the United States they found, "Income inequality in the United States is large, despite the U.S. having one of the highest levels of income per capita in our sample. Specifically the Gini Coefficeint of the U.S. was 40.46 in 2010, very close to the average Gini Coefficient of African countries in our sample". In addition European nations generally have a Gini coefficient between 0.24 and 0.36 while the United States had maintained above 4. Since 2010 the Gini Coefficient has risen in the United States and was .49 in 2018